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Saturday, 4 October 2008

Malaysia, Dubai 'should develop Islamic finance'

By Babu Das Augustine, Banking Editor (Gulf News)
Published: October 03, 2008, 23:41
Dubai: The Malaysian Islamic financial sector is seen as one of the most progressive and attractive in the world given the numerous incentives planned and further liberation in the coming years.
Over the past decade, the international financial community has taken note of Malaysia's strategic direction in developing and nurturing Islamic banking and finance. The strategies are being implemented through clear and deliberate policies spelt out in both the Financial Sector Master Plan as well as the Capital Market Master Plan.
Currently, Malaysia is the largest Islamic banking and financial services market in the world that has the critical mass of diversified players - Islamic banks, investment banks, takaful companies, development financial institutions, savings institutions, fund management companies, stock brokers and unit trusts.
Ahead of the extraordinary gathering of ministers of finance from the Association of Southeast Asian Nations in Dubai on October 7 and 8, Tan Sri Nor Mohammad Yakcop, Malaysia's Minister of Finance II, talks to Gulf News about Malaysia's role in developing and co-operating with other international initiatives in developing international centres of Islamic finance.
GULF NEWS: Despite being the leader in Islamic finance and a hub of sukuk issuance, Malaysia seems to lack government initiative to capitalise on its strong talent resources in the sector.
Tan Sri Nor Mohammad Yakcop: The Malaysian Government has always been fully behind initiatives to develop Islamic finance, since its inception in Malaysia, more than 25 years ago.
It had started with the government issuing an Islamic government bond and establishing an Islamic bank. Currently, Malaysia has a comprehensive Islamic financial system, which includes Islamic banking, money markets, bond market, insurance (takaful) and even pawnbroking.
Malaysia has the distinction of being the first country to have a full-fledged Islamic financial system operate in parallel with our conventional system.
Could you list some initiatives?
Malaysia has pioneered products [ First exchangeable sukuk by Khazanah Nasional Berhad - $750 million in 2006] and regulations [Malaysia is founding member and host country of the Islamic Financial Services Board].
To further leverage on Malaysia's experience and expertise in this area, the government in August 2006 had launched the Malaysia International Islamic Financial Centre [MIFC] initiative. The initiative provides for a coordinated regulatory framework, fiscal incentives and a facilitative business environment.
The MIFC global communications campaign was launched in 2008 to deliver the message of Malaysia's key value propositions as a centre for Islamic Finance.
How do you plan to work with emerging financial capitals like Dubai?
Malaysia welcomes the growing acceptance and popularity of Islamic finance, together with the emergence of other Islamic financial centres such as Dubai. We believe it is not a zero sum game. In fact, the increasing number of financial centres undertaking Islamic finance, is a necessary condition to provide critical mass and sustainability for the sector.
Malaysia intends to collaborate further with other Islamic financial centres such as Dubai, particularly in the area of regulation [mutual recognition, setting of standards] and cross investments [having financial intermediaries from the Middle East invest in Malaysia and vice versa]. We believe there is significant scope for cooperation towards mutual benefit and advancing the development of Islamic finance.
Malaysian geographical growth corridors like the Iskandar region have attracted interest. Can you outline the commitments you have received from Gulf investors and the progress made on first stage infrastructure investments?
Investments committed to date for the Iskandar region are estimated at 36 billion Malaysian ringgitt.
The commitments are from credible blue chip investors such as Mubadala Development Company, which earlier this year signed a definitive agreement to develop five zones in Node 1 of the Iskandar Development Region in Johor.
The initial investment for the land and infrastructure would cost about $500 million, and is expected to generate in excess of $20 billion worth of gross development value over the next few years.
We are in active talks with other investors.
What are some of the strategies Malaysia is adopting to attract high value or knowledge-intensive investments?
In its first 50 years of nationhood, Malaysia has successfully transformed from a poor nation to a middle income country. Going forward, it is our national aspiration to become a developed nation, and this will require us to move up the value chain.
The growth corridors are a good example of the government facilitating greater investments in knowledge intensive investments. It is part of a broader approach to provide a facilitative business environment.
In recent years, the government has focused on improving the public delivery system. In addition, corporate tax rates have been reduced and comprehensive fiscal incentives have been offered for knowledge intensive sectors, such as biotechnology and ICT.
What about infrastructure development in this sector?
To support the needs of knowledge-based industries, the government has undertaken investments in infrastructure, such as in terms of logistics and communications. Most recently, the government announced its plan to provide high speed broadband in urban centres.
Beyond physical infrastructure, the government has consistently emphasised human capital development to meet the needs of high value industries.
The largest allocation for government expenditure is in education and this will continue.
Further, this is supplemented by a liberal policy in the movement of knowledge workers.
In this ever more globalised world, Malaysia will increasingly focus on competitive niches. By advancing initiatives towards greater regional integration, such as within the Asean region, Malaysia is better able to leverage on a larger regional market.
At the same time, stronger regional integration allows Malaysia to optimise by focusing on the higher value-added segments of the production chain and integrate with other parts of the value chain sited in neighbouring countries.
How do you think the current political crisis in Malaysia will impact trade and investment flows between Malaysia and the UAE?
We do not view the current situation as a crisis of any sort. The Federal Government was given the mandate to govern. The government intends to carry that mandate and govern responsibly, continuing with our reform agenda to strengthen institutions and our policies to promote growth with equity.
The government has been consistently pro-business and pro-investment in its policies. Even the opposition espouses pro-investment policies. Hence, politics should not adversely impact trade and investment flows between Malaysia and UAE.
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